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PAUL R. GLASSMAN (State Bar No. 76536) LAURA L. BUCHANAN (State Bar No. 156261) KATHLEEN D. DeVANEY (State Bar No. 156444) STRADLING YOCCA CARLSON & RAUTH A Professional Corporation 100 Wilshire Blvd., Suite 440 Santa Monica, CA 90401 Telephone: (424) 214-7000 Facsimile: (424) 214-7010 E-mail: pglassman@sycr.com lbuchanan@sycr.com kdevaney@sycr.com JAMES F. PENMAN (State Bar No. 91761) CITY ATTORNEY 300 North "D" STREET, Sixth Floor San Bernardino, CA 92418 Telephone: (909) 384-5355 Facsimile: (909) 384-5238 E-mail: Penman_Ja@sbcity.org Attorneys for Debtor City of San Bernardino UNITED STATES BANKRUPTCY COURT

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CENTRAL DISTRICT OF CALIFORNIA 15 RIVERSIDE DIVISION 16 17 18 19 20 21 22 23 24 25 26 27 28

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In re: CITY OF SAN BERNARDINO, CALIFORNIA, Debtor.

Case No. 6:12-BK-28006-MJ Chapter 9 DECLARATION OF JASON P. SIMPSON IN SUPPORT OF CITY OF SAN BERNARDINO'S MEMORANDUM OF FACTS AND LAW IN SUPPORT OF THE STATEMENT OF QUALIFICATIONS UNDER SECTION 109(C) OF THE BANKRUPTCY CODE

DECLARATION OF JASON P. SIMPSON

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DECLARATION OF JASON P. SIMPSON

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I, Jason P. Simpson, declare:

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My name is Jason P. Simpson. I am over 18 years of age. I am authorized to and

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do make this declaration in support of the City Of San Bernardino's Memorandum Of Facts And Law In Support Of The Statement Of Qualifications Under Section 109(C) Of The Bankruptcy Code. I have personal knowledge of the matters set forth in this declaration, and if called upon to testify, I could and would competently testify thereto .

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I am the Director of Finance ("Finance Director") for the City of San Bernardino,

California (the "City" or " San Bernardino"). In my capacity as Finance Director, I am primarily responsible for planning, organizing, managing, supervising and directing the day-to-day activities and programs of the City' s Finance Department and its employees. The Finance Department provides the City with comprehensive financial and accounting services, including financial analysis and budgeting, accounting, accounts payable, accounts receivable, payroll and purchasing services, revenue management, capital improvement plan development and administration, employee bargaining, short and long-range financial and capital planning, budget administration, debt management, financial software management, and development of various accounting and budget reports. I am also responsible for providing assistance and guidance to City management on finance, budgeting, revenue management, revenue projections, analysis of proposals for capital and operating programs, budget status and expenditures, payroll and purchasing, accounting and related matters. In addition, I am responsible for advising the City Manager and the Mayor and Common Council on short-term and long-term financial planning and policy matters to meet service delivery and facilities infrastructure development objectives in a manner consistent with the City' s financial resources, and preparing or directing the preparation of periodic financial reports, staff reports, mid-year budgets and annual budgets in accordance with policy direction and guidance from the City Manager, Mayor and Common Council. I am also responsible for overseeing preparation of the Comprehensive Annual Financial Report and monitoring and enforcing internal financial controls, audits conducted by the City's external auditors and other -IDECLARATION OF JASON P. SIMPSON
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audit agencies. My duties also include developing and reviewing reports of findings, alternatives and recommendations involving a broad range of revenue, financial and financial management issues and making presentations to the Common Council, other agencies and community groups on the City's fiscal status and operations. I began my employment as the Finance Director on or about March 28, 2012. 3. I have approximately 21 years of experience working in municipalities in various

capacities, including as the assistant city manager, assistant director of finance, and treasury supervisor. My employment experience also includes work at independent certified public accounting firms that provided consulting and assistance to municipal clients in need of financial management assistance, as well as audits and preparation of Comprehensive Annual Financial Reports. Prior to my employment as Finance Director for the City, I was the Assistant City Manager for the City of Desert Hot Springs, California from October 2008 to March of2012. As the Assistant City Manager of Desert Hot Springs, I was primarily responsible for the day-to-day operations of the Finance, Public Works, Planning, Building, Human Resources, Risk Management, and Information Systems Departments, investing public funds, capital improvement plan development and administration, employee bargaining, short and long-range financial and capital planning, budget administration, management of financial software, development of reports utilizing SQL tools, accounts receivable, payroll, accounts payable, purchasing, and various other general accounting duties. In addition, I was involved in investment portfolio oversight for the City of Desert Hot Springs, the RDA and the Housing Authority and certain debt issues. Prior to my employment as the Assistant City Manager for the City of Desert Hot Springs, California, I was the Assistant Director of Finance for the City of Temecula, California from January 2004 to October 2008, the Assistant Director of Finance for the City of Indio, California from November 2002 to January 2004, the Assistant Director of Finance for the City of Vallejo, California from October 1998 to July 1999 and the Acting Assistant Finance Director and Treasury Supervisor for the City of Costa Mesa, California from November 1994 to October 1998. I also hold a Bachelor of Science degree in Business Administration- Accounting from Biola University.
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DECLARATION OF JASON P. SIMPSON

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4.

As the Finance Director for the City, I am familiar with the procedures of the City

for the maintenance of financial and business records in the Finance Department. I am one of the custodians of the books, records and files of the City that pertain to the matters set forth in this declaration. I have personally worked on the books, records and files, and as to the matters in this declaration, I know them to be true of my own knowledge or I have gained knowledge of them from the business records of the City maintained in the ordinary course of the City' s business, which were made at or near the time of the acts or events recorded therein by, or from information transmitted by, a person with knowledge of the acts or events who had personal knowledge of the event and had or has a business duty to record such event accurately. During all relevant times, the practice of the City was and is to maintain accurate and complete records regarding accounts receivable, payroll, accounts payable, purchasing and other documents that relate to City' s fiscal condition and accounting information. 5. As the Finance Director for the City, I am also familiar with the accounting and

financial software used by the City. The City currently uses New World Financial Software ("New World") for its accounting functions. To summarize the City' s accounting procedures, each department of the City employs accounting technicians who have the responsibility of establishing purchase orders in the City's financial systems based on approved budget appropriations. The purchase orders are then reviewed by Finance Department staff and approved once the data has been verified (including the account to be charged and that funding is verified and available). Once a purchase order is approved, the issuing department has the responsibility of managing the day-to-day input of invoices and requests for payment from vendors and contractors. Typically, the City works on a 30 days net basis: invoices are received, the interdepartmental and Finance Department approvals are completed and a check is issued within 30 days of receipt of the invoice. In the event funds are not available, the finance system will not allow the request to continue unless it is approved by the Finance Director. To ensure expenses are in line with budget assumptions, Finance Department staff have the ability to produce status reports detailing expenses as often as necessary, including weekly, monthly and

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year-to-date figures. These reports are used to validate budget assumptions and/or to make adjustments as necessary. 6. As part of my duties as Finance Director, beginning in May 2012, I began the

process of analyzing the City's financial condition and developing a budget for the 2012-13 fiscal year which began on July 1, 2012. As part of that process, I discovered that the monthly reconciliation of the bank statements for the City's bank accounts to the City's ledgers for the General Fund account had not been done since June 30, 2011 and was nine months behind schedule, and the financial audit for the 201 0-11 fiscal year had not been completed. I also began to analyze the status of the City's reserves and the City' s budgets from fiscal year 2007-08 through 2011-12. As part of that process, I discovered that the fonner City Manager's belief as set forth in the City's April 3, 2012 mid-year financial report that the City' s General Fund estimated budget shortfall for fiscal year 2011-12 would be about $3.1 million and that fund balance was a positive $2 million at June 30, 2011 was inaccurate and, instead, the analysis undertaken since May 2, 2012 estimates that the 2011-12 budget shortfall after transfers is $9.4 million bringing the previously reported fund balance from a positive $2.0 million to a negative $1.2 million at June 30, 2011 to an estimated negative $10.6 million at June 30, 2012. This process took roughly seven weeks, and resulted in a report by the City's Finance Department entitled "San Bernardino Budgetary Analysis and Recommendations for Budget Stabilization" (the "Budget Report") dated July 9, 2012. In addition to other employees of the Finance Department, the Interim City Manager, Andrea Travis-Miller, and members of her staff, as well as Michael Busch, President ofUrban Futures, Inc., the City's consultant that was retained in early June 2012, assisted in the process of preparing the Budget Report. 7. The City's General Fund pays for most all municipal services such as police, fire,

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public works, administrative services, recreation, and cultural programs. General Fund revenues may be spent on any legal municipal purpose. Generally speaking, General Fund cash flow is sporadic. While personnel expenses are steady throughout the year, revenue receipts vary widely. By way of example, the City receives large and most of its property tax revenue distributions (90% of total distribution) into the General Fund twice in its fiscal year, in -4DECLARATION OF JASON P. SIMPSON
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December and April. Other revenues such as sales tax and utility users tax may come into the 2 3 4 5 6 7 8 9 10 1I 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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General Fund on a monthly basis, while revenue such as the transient occupancy tax may be received on a quarterly basis, and business license taxes may be received on an annual basis. Under generally accepted accounting principles ("GAAP"), municipalities account for their activities in separate funds to segregate resources by source and purpose and to allow a reporting process that reflects the financial activities of each of the funds and demonstrates compliance with the numerous restrictions that are placed on many of the City's resource streams of other funds. Also, federal , state, and private grants may contain requirements that restrict how and for what purpose grant monies from those sources may be spent. 8. As explained in the Budget Report, the City has struggled with budget deficits for

the past four consecutive fiscal years. Since the end of fiscal year 2008-09, the City's General Fund revenues dropped while its General Fund expenditures remained about the same or increased. As a result, the City's budget deficits in the last four fiscal years total about $26.7 million as follows: (1) an $13.5 million deficit after transfers in fiscal year 2008-09; (2) a $2.3 million deficit after transfers in fiscal year 2009-1 0; (3) a $1.6 million deficit after transfers in fiscal year 2010-11; and (4) an estimated $9.4 million deficit after transfers for fiscal year 201112. To close these past budget deficits, the City exhausted its General Fund reserves and internal service fund reserves, negotiated or imposed compensation reductions, cut jobs, cut services, sold assets, implemented revenue measures, increased transfers from other funds, left vacancies unfilled and used other mechanisms to maintain liquidity and continue to provide essential City services. Despite these efforts, the City now faces a projected operating shortfall of over $45.8 million in its current 2012-13 fiscal year, which amounts to almost 38% of the projected General Fund budget. The City's budget deficit is projected to grow only larger to approximately $49 million each year for the next five fiscal years due to, among other things, continued stagnation in General Fund revenues, the poor housing market and economy, high unemployment, increasing pension and other post-retirement benefit costs, and unfunded liabilities in the City's retiree health, worker's compensation and general liability accounts.

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-5DECLARATION OF JASON P. SIMPSON

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9.

The Budget Report reflects that revenues from secured property and sales taxes

alone dropped between $10 million and $16 million annually over the last several years. Since the 2008-09 fiscal year, prope1iy tax revenues dropped between approximately $4 million and $7 million each year. Sales tax revenue has declined significantly from a peak level of $36.7 million in 2005-06 to a low of $20.4 million in 2009-10 -- a decline of over $16 million or 44.4%. Despite the City's estimate of a slight increase in property taxes from fiscal year 201 112 to fiscal year 2012-13, the City estimates that it faces over $17 million of non-residential property tax appeals exposure which, if granted by the County, would yield further reductions in property tax revenues. 10. In addition to declining real property and sales tax revenues, the Budget Report

reflects that the City has suffered essentially flat or lower revenues from franchise taxes, user utility taxes, business registration, licenses and permits, revenues from other agencies and other miscellaneous revenues from sources such as fines , penalties and the transient occupancy tax. The loss of redevelopment agency funds also negatively impacted the City's financial struggles as such monies have been used for ce1iain general governmental functions. The City estimates that sales and other taxes will increase modestly this fiscal year. The utility users tax and franchise tax depend on resident use, while the business license tax depends on economic activity. In sum, General Fund revenues for fiscal year 2012-13 will be essentially flat due to the City's depressed economic climate.

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Labor costs have been and are the City's largest General Fund expenditure. In

fiscal year 2011-12, 72% of the General Fund budget was dedicated to public safety services provided by the police and fire departments, with another 4% of the General Fund allocated to other departments to support public safety functions. Over the last few years, the City tried to balance its budgets by negotiating reductions in employee costs, while continuing to provide essential services to the public and eliminating certain City positions, all of which resulted in reductions in service levels to the community. In the current fiscal year, personnel costs alone are expected to exceed revenues. Police and firefighter expenditures are estimated to account for close to $110,000,000 in fiscal year 2012-13 , which is 69% of all General Fund projected
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DECLARATION OF JASON P. SIMPSON

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expenditures. San Bernardino is a Charter city. The City' s Charter contains provisions that 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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establish the salaries for members ofboth the San Bernardino Police and Fire Departments, and mandates a process of determining such salaries based on the arithmetic average of the monthly salaries paid in the top ten California cities with populations between 100,000 and 250,000. Under the City's Charter, the process for determining the amount of salaries paid to the City' s police and firefighters are independent of and unrelated to the fiscal condition of the City. 12. Despite the City's efforts to reduce personnel costs by negotiating concessions,

eliminating positions and leaving vacancies unfilled, the City' s cost per employee has risen steadily as retirement costs increase. This has forced the City to reduce staff and services in an effort to balance budgets without receiving any corresponding reduction in its overall personnel costs. 13. The City' s book value and market value of its unfunded CalPERS liability is

$143.3 million and $319.5 million, respectively, and the current fiscal year proposed budget does not include any budgeted amount for this liability. The City' s retirement plans also provide for other post-employment benefits (OPEB) consisting of retiree medical care. Generally, City employees are eligible to receive a financial contribution towards medical insurance coverage after retirement from public service. Because employees are eligible to retire at either age 50 (for police and fire) or 55 (for other employees) before such employees are eligible for Medicare, the City' s costs for this benefit are significant. As of June 30, 2011 , the City' s unfunded liability for OPEB benefits was estimated to be $61 million, and there is no money or assets set aside that either fund or pre-fund these obligations. The City' s pay-go payment is over $600,000 annually, and its Annual Retirement Contribution (ARC) for OPEB benefits is over $6 million. 14. As set forth in the Budget Report, the City established Internal Service Funds for

several purposes pursuant to accepted governmental accounting practices. An Internal Service Fund is a fund for goods and services provided for specific purposes. The City establishes rates for each Internal Service Fund and then charges each department within the City for the goods and services provided to that department. For example, the City has Internal Service Funds for fleet services (vehicles, vehicle maintenance and related costs), liability and property insurance -7DECLARATION OF JASON P. SIMPSON
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(for the City' s self-insurance program and payment of claims), worker' s compensation 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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insurance, unemployment insurance, telephone support (for the City's communication system), utilities (for the City' s utility costs) and central services (for reproduction and copying services). All the reserves in the City's Internal Service Fund accounts have been depleted and its worker's compensation and liability and property insurance funds are underfunded by an estimated $20 million. The need to replenish funding for long term liabilities in the City's Internal Service Funds which are essential for the City's operations contributes and are in addition to the City's current fiscal year budget deficit. 15. The City' s outstanding bonded indebtedness is approximately $90 million. To

address growing public safety pension obligations, the City issued pension obligation bonds ("POBs") in 2005 which reduced unfunded pension liabilities. The City's annual pension costs were reduced by $2 million after the issuance of the bonds. However, the issuance of bonds and subsequent deposit of bond proceeds into the City's public safety account was ill-timed as it occurred before CalPERS lost a significant amount of its pension portfolio in the financial markets. These losses negatively impacted the City beyond the loss of its deposited funds and have surpassed all the saving realized from the issuance of the POBs. The City's POBs liabilities will only increase over time. The City' s current annual approximate $3.3 million debt payment on its POBs is anticipated to nearly double by fiscal year 2021-22. In addition, the City has outstanding capital lease obligations of almost $16 million for critical City assets such as City Hall, police, library and fire facilities. The City also leases equipment c1itical to the health, safety and welfare of its residents such as fire engines, police vehicles, fire station alerting systems, refuse trucks and other critical equipment. In addition to its bonded indebtedness, loans, and capital leases, the City has infrastructure loans for capital improvements. 16. The City does not have a balanced budget for its current fiscal year. In fact, the

City is operating under Common Council adopted continuing budget resolutions for July and August which were replaced by the City's "Fiscal Emergency Plan" from the July 24, 2012 Common Council Meeting. The trends from the last several years remain the same in its current fiscal year-- while the City' s revenues have not recovered following the steep declines of the -8DECLARATION OF JASON P. SIMPSON
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Great Recession and housing bubble burst, its General Fund expenses remain the same or are increasing. The City projects that General Fund revenues will be approximately $120,424,165, while preliminarily projected expenditures are $166,236,557. The City' s total labor costs alone exceed all of its projected revenue. The City's financial challenges are substantial because none of the City's major expense categories are projected to decrease in this fiscal year and, instead, aggregate expenditures are projected to increase by 8.93%. Other sources of potential revenue are also limited. For example, the City is in the process of analyzing whether any nonessential real property it owns might be sold to raise one-time revenue. While the City has not yet completed its analysis, the City does not believe that proceeds from the sale of City owned property would result in sufficient proceeds to solve the City' s $45.8 million budget deficit. 17. On July 10, 2012, the City Manager, Michael Busch and I presented the Budget

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Report to the Mayor and Common Council at the July 10, 2012 Common Council meeting. The key points of our presentation as set forth in the Budget Report were that: (1) the City faced a budget deficit preliminarily estimated to be over $45.8 million in its current fiscal year which began on July 1, 2012; (2) the City had depleted all of its General Fund reserves and reserves in its internal service fund accounts and other accounts to cover substantial budget deficits in the last four consecutive fiscal years; (3) immediate and substantial action had to be taken to reduce spending and preserve cash for the City to continue providing essential services to the City's residents; (4) reviews of the City's General Fund revealed that the balances at the start of the 2010-11 and 2011-12 fiscal years had been erroneously reported by City staff and actually totaled over $4.5 million less than reported, and the beginning General Fund balance for the current fiscal year was estimated to be a cash deficit of over $18.2 million; and (5) the City did not have enough unrestricted cash available to pay its financial obligations due and owing in July of2012 and continuing throughout the current fiscal year and beyond and faced insolvency. 18. The Budget Report also indicated that a recently completed financial audit

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required the City to restate its General Fund starting fund balance for the last three fiscal years. Specifically, for fiscal year 2010-11, the balance was restated downward from approximately $1 ,770,400 to $410,293, a negative adjustment of roughly $1.36 million. The situation was even -9DECLARATION OF JASON P. SIMPSON
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worse for 201 1-12. The General Fund starting fund balance for fiscal year 2011-12 needed to be restated from a positive $2,044,100 to a negative $1,181,603, a reduction of about $3.2 million, for a total downward adjustment of $4,585,810 in the last two fiscal years. The City' s General Fund starting fund balance for fiscal year 2012-13 was estimated to be a cash deficit of $18,292,229. 19. The Budget Report also explained that the City faced a severe liquidity crisis, and

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did not have enough cash to pay its ongoing financial obligations. The City's available cash in the General Fund reached a negative fund balance of$18.5 million and as low as about $150,000 citywide including the restricted or committed special funds separate from the General Fund. I believed that this dire cash flow crunch presented a fiscal emergency that translated into a service emergency and would negatively affect and jeopardize the health, safety and well-being of its citizens if City employees, including police, fire and other essential workers, were not paid and did not report for work. 20.
I also helped prepare a second report regarding the City's fiscal emergency (the

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"StaffReport"). The Staff Report identified additional contributing factors to the City's liquidity crisis and unstable financial condition including, inter alia, (1) the City had no ability to access the short term credit market; (2) the City's credit line had been terminated; (3) the City's vendors and creditors were demanding cash up front before essential materials, goods or services would be provided; (4) an unusually large number of employees were retiring and leaving the City triggering immediate cash outs of leave accruals above annual averages; (5) the City was in danger of defaulting on its Pension Obligation Bond payment and on leases for critical City assets; and (6) cash flow projections showed that the City had monthly General Fund cash deficits ranging between approximately $2 and $5.6 million from July through September. 21. On July 24, 2012, the City Manager, Michael Busch and I presented a report

entitled "Fiscal Emergency Operating Plan- July 2012 to September 2012" (the "Fiscal Emergency Plan") and a report entitled "City of San Bernardino Selected Monthly Cash Flow Analysis" ("Cash Flow Analysis") which I helped prepare to the Common Council and Mayor. These reports demonstrated that the City estimated it had net cash deficits of over $11 .5 million -10DECLARATION OF JASON P. SIMPSON
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and, as such, could not pay all of its obligations due and owing or becoming beginning in July 2012 and continuing through September of2012. Attached hereto as Exhibit A is a true and correct copy of a document I prepared in the ordinary course of my duties as Finance Director entitled "City of San Bernardino, California Estimated Cash balance as of7/31112" which reflects the balances of the funds City-wide and categories for each of those funds (either General Fund available, Other Discretionary Funds, Assigned/Committed by Council or Legally Restricted (External or Charter). Funds that are shaded are subject to restrictions under Proposition 218. 22. The City's preliminary projections for the current fiscal year show that the

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General Fund will operate at a budget deficit of over $45.8 million. From the end of June 2012, the City will end each month with a negative cash balance of millions of dollars in the General Fund. These figures demonstrate that the City lacks enough money in fiscal year 2012-13 to pay its General Fund obligations. 23. As the magnitude of the City' s financial problems became clearer, I determined

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that the City could not borrow money from the private credit markets to meet its obligations because the City could not demonstrate the ability to pay back any such loan with revenues generated in the current fiscal year. The City also had depleted all of its reserves. 24. After media coverage of the City's dire fiscal condition, the City's financial

condition and resources deteriorated further and the City faced more threats and instability resulting from certain actions by creditors. For example, most all of the City's vendors refused to continue to provide goods and services unless they were paid in cash up front. In addition, Wells Fargo Bank, the City's bank, suspended its credit line and required that the City deposit the full amount of its payroll obligations into its payroll account two (2) days in advance or else Wells Fargo Bank would not generate and issue payroll checks to City employees. 25. In order to preserve enough cash to meet its August payroll obligations and

provide essential services through the end of September, the City approved a Fiscal Emergency Plan on July 24, 2012, and was forced to defer and not pay obligations for: (1) a debt due on July 20, 2012 in the amount of about $3.3 million for its pension bond obligations, (2) a payment due -11DECLARATION OF JASON P. SIMPSON
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under a note for its financial accounting software system in the amount of $645,000; (3) bimonthly payments to fund retiree health obligations due in the first quarter in the amount of $2,219,332; (4) deferred equipment purchases and capital projects; and (5) other trade payables due and owing in an amount of over $6 million. This was a necessary measure to maintain liquidity so that the City could preserve enough cash to make the City' s August payroll and continue essential operations through September 2012 under its Fiscal Emergency Plan. The City also continued certain employee compensation concessions and took other measures to preserve cash. In addition, the City could not make payments required under settlement agreements in three lawsuits totaling in the an1ount of $1,461,000 because of its liquidity crisis. 26. The City is still plagued by extremely serious cash flow problems, and its

unrestricted cash is nearly depleted every two weeks after the City makes each payroll payment. I declare under penalty of perjury that the foregoing is true and correct. Executed on

August ~ 2012 at San Bernardino, California.

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GENERAL FUND

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CITY OF SAN BERNARDINO, CALIFORNIA Estimated Cash balance as of 7/31/12 (unaudited)

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DISCRETIO NARY

C
ASSIGNED COMMITTED

FUND A B C D 001 004 105 106 108 111 116 117 118 119 120 121 123 124 126 128 129 132 133 134 135 137 208 211 240 241 242 243 244 245 246 247 248 250 251 254 256 257 258 261 262 263 264 265 266 267 268 269 305 306 356 527 621 629 630 631 635 677 678 679

7/31/2012
General Fund available Other Discretionary Funds Assigned/Committed by Council Legally Restricted (External or Charter)

RESTRICTED

AMOUNTS A B D D C D D D C D D D D D D B D D C C B D D C B C D D D D D B D B D D D D D D D D D D D D D D D D D B B B B B B B B B $ (18,570,509) (490,561) (46,299) 35,519 1,042,617 (8,236) 0 (222,960) 115,680 (375,671) (491,576) 1,941,756 (2,851,921) 37,511 135,184 (905,426) 4,081,673 1,494,060 (40,751) 359,767 (33,847) 333,300 248,608 97,471 (9,049) 4,519 (2,342,320) 268,822 52,519 2,593,059 1,079,021 446,483 2,845,971 (10,750) (2,025,723) 2,161,388 33,779 226 2,371,458 185,702 275,226 523,529 6,098,297 (10,636) 378,207 114,977 1,461,193 241,344 68,457 19,020 47,704 (633,477) (84,924) 306,720 108,690 20,034 (1,463,044) (101,416) (1,404,153) 513,697 $ (18,570,509) 0 0 0 0 0 0 0 0 (375,671) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $

CATEGORY SPREAD (490,561) 0 0 0 0 0 0 0 0 0 0 0 0 0 (905,426) 0 0 0 0 (33,847) 0 0 0 (9,049) 0 0 0 0 0 0 446,483 0 (10,750) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (633,477) (84,924) 306,720 108,690 20,034 (1,463,044) (101,416) (1,404,153) 513,697 $ 0 0 0 1,042,617 0 0 0 115,680 0 0 0 0 37,511 0 0 0 0 (40,751) 359,767 0 0 0 97,471 0 4,519 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 $ 0 (46,299) 35,519 0 (8,236) 0 (222,960) 0 0 (491,576) 1,941,756 (2,851,921) 0 135,184 0 4,081,673 1,494,060 0 0 0 333,300 248,608 0 0 0 (2,342,320) 268,822 52,519 2,593,059 1,079,021 0 2,845,971 0 (2,025,723) 2,161,388 33,779 226 2,371,458 185,702 275,226 523,529 6,098,297 (10,636) 378,207 114,977 1,461,193 241,344 68,457 19,020 47,704 0 0 0 0 0 0 0 0 0

GENERAL FUND OLD FIRE LIBRARY FUND CEMETERY FUND ASSET FORFEITURE FUND AB2744 AIR QUALITY - ALT TRANS EMERGENCY SOLUTIONS GRANT HOME IMPROVEMENT PART PROGRAM GANG & DRUG ASSET FORFETURE CDBG NEIGHBORHOOD STABILIZATION PROGRAM SBETA FEDERAL & STATE PROGRAM ANIMAL CONTROL FUND GAS TAX FUND TRAFFIC SAFETY FUND 1/2 CENT SALES & ROAD SEWER LINE MAINTENANCE BASEBALL STADIUM SOCCER FIELD AB 2928 TRAFFIC CONGESTION CFD 1033 - FIRE STATION VERDEMONT CAPITAL PROJEXT FIRE EQUIP ACQUISITION CIEDB STREET CONSTRUCTION PARK EXTENSION FUND STREET CONSTRUCTION FUND PARK CONSTRUCTION FUND CEMETERY CONSTRUCTION SEWER LINE CONSTRUCTION PUBLIC IMPROVEMENT FUND CULTURAL DEVELOPMENT CONSTRUCTION STORM DRAIN CONSTRUCTION TRAFFIC SYSTEMS CONSTRUCTION SPECIAL ASSESSMENTS FUND ASSESSMENT DISTRICT FUND ASSESSMENT DISTRICT 1015 STREET LIGHTING/SWEEPING PROP 1B - LOCAL STREET LAW ENFORCEMENT FACILITY FIRE SUPRESSION/MEDIC LOCAL REGIONAL CIRCULA REGIONAL CIRCULATION S LIBRARY FACILITIES PUBLIC USE FACILITIES AQUATICS FACILITIES AB 1600 PARKLAND QUIMBY ACT PARKLAND AD#985 DEBT SERVICE FUND AD#987 DEBT SERVICE FUND AD939 NEW PINE DEBT INTEGRATED WASTE MANAGEMENT CENTRAL SERVICES FUND LIABILITY INSURANCE FUND TELEPHONE SUPPORT FUND UTILITY FUND FLEET SERVICES FUND UNEMPLOYMENT INSURANCE WORKERS COMPENSATION FUND INFORMATION TECHNOLOGY

Case 6:12-bk-28006-MJ

Doc 127-2 Filed 08/31/12 Entered 08/31/12 12:17:54 Exhibit A Page 3 of 3

GENERAL FUND DISCRETIO NARY ASSIGNED COMMITTED

Desc

FUND A B C D 701 703 704 758 772 775 784 TOTAL

7/31/2012
General Fund available Other Discretionary Funds Assigned/Committed by Council Legally Restricted (External or Charter)

RESTRICTED

AMOUNTS D D D D D D D $ 369,598 62,145 26,718 57,687 4,098,195 206,366 1,166,641 6,007,291 * 0 0 0 0 0 0 0 (18,946,180)

CATEGORY SPREAD 0 0 0 0 0 0 0 (3,741,023) 0 0 0 0 0 0 0 1,616,815 369,598 62,145 26,718 57,687 4,098,195 206,366 1,166,641 27,077,679

AD 961 TRUST AND AGENCY AD977A TRUST & AGENCY AD977B TRUST & AGENCY AD906 TRUST & AGENCY SPECIAL DEPOSITS FUND CEMETERY PERPETUAL CARE PAYROLL TRUST FUND

SUMMARY A General Fund Discretionary Funds (General Fund eligibleB Board assigned/committed C Restricted - Prop 218 Funds D Restricted D TOTAL $ (18,946,180) (3,741,023) 1,616,815 1,154,299 25,923,379 6,007,291

* Please note that the City's financial records have not been closed for FY 12; accordingly, there may be some adjustments to these amounts as we finalize reconciliations and adjustment to the accounting ledgers for FY 2011-12.

Case 6:12-bk-28006-MJ

Doc 127-3 Filed 08/31/12 Entered 08/31/12 12:17:54 Proof of Service Page 1 of 3

Desc

PROOF OF SERVICE OF DOCUMENT

I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: 100 Wilshire Blvd., Suite 440, Santa Monica, CA 90401. A true and correct copy of the foregoing document entitled: DECLARATION OF JASON P. SIMPSON IN SUPPORT OF CITY OF SAN BERNARDINO'S MEMORANDUM OF FACTS AND LAW IN SUPPORT OF THE STATEMENT OF QUALIFICATIONS UNDER SECTION 109(C) OF THE BANKRUPTCY CODE will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner stated below: 1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On August 31, 2012, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the email addresses stated below: Jerrold Abeles abeles.jerry@arentfox.com Joseph M Adams jadams@lawjma.com Andrew K Alper aalper@frandzel.com, efiling@frandzel.com;ekidder@frandzel.com Thomas V Askounis taskounis@askounisdarcy.com Anthony Bisconti tbisconti@bmkattorneys.com Jeffrey E Bjork jbjork@sidley.com Sarah C Boone sboone@marshackhays.com, ecfmarshackhays@gmail.com J Scott Bovitz bovitz@bovitz-spitzer.com Jeffrey W Broker jbroker@brokerlaw.biz Deana M Brown dbrown@milbank.com Michael J Bujold Michael.J.Bujold@usdoj.gov Christina M Craige ccraige@sidley.com Alex Darcy adarcy@askounisdarcy.com Susan S Davis sdavis@coxcastle.com Robert H Dewberry robert.dewberry@dewlaw.net Todd J Dressel dressel@chapman.com, lubecki@chapman.com Chrysta L Elliott elliottc@ballardspahr.com, manthiek@ballardspahr.com Scott Ewing contact@omnimgt.com, sewing@omnimgt.com Paul R. Glassman pglassman@sycr.com Everett L Green everett.l.green@usdoj.gov Chad V Haes chaes@marshackhays.com, ecfmarshackhays@gmail.com James A Hayes jhayes@cwlawyers.com M Jonathan Hayes jhayes@hayesbklaw.com, roksana@hayesbklaw.com;carolyn@hayesbklaw.com;elizabeth@hayesbklaw.com D Edward Hays ehays@marshackhays.com, ecfmarshackhays@gmail.com Eric M Heller eric.m.heller@irscounsel.treas.gov Bonnie M Holcomb bonnie.holcomb@doj.ca.gov Whitman L Holt wholt@ktbslaw.com Michelle C Hribar mch@sdlaborlaw.com Steven J Katzman SKatzman@bmkattorneys.com Jane Kespradit jane.kespradit@limruger.com, amy.lee@limruger.com Mette H Kurth kurth.mette@arentfox.com Richard A Marshack rmarshack@marshackhays.com, lbergini@marshackhays.com;ecfmarshackhays@gmail.com Gregory A Martin gmartin@winston.com David J Mccarty dmccarty@sheppardmullin.com, pibsen@sheppardmullin.com
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012

F 9013-3.1.PROOF.SERVICE

DOCSOC/1581498v1/200430-0003

Case 6:12-bk-28006-MJ

Doc 127-3 Filed 08/31/12 Entered 08/31/12 12:17:54 Proof of Service Page 2 of 3

Desc

Reed M Mercado rmercado@sheppardmullin.com Aron M Oliner roliner@duanemorris.com Scott H Olson solson@seyfarth.com Dean G Rallis drallis@sulmeyerlaw.com Christopher O Rivas crivas@reedsmith.com Kenneth N Russak krussak@frandzel.com, efiling@frandzel.com;dmoore@frandzel.com Gregory M Salvato gsalvato@salvatolawoffices.com, calendar@salvatolawoffices.com Mark C Schnitzer mschnitzer@rhlaw.com, mschnitzer@verizon.net Benjamin Seigel bseigel@buchalter.com, IFS_filing@buchalter.com Diane S Shaw diane.shaw@doj.ca.gov Jason D Strabo jstrabo@mwe.com, losangelestrialdocket@mwe.com Matthew J Troy matthew.troy@usdoj.gov United States Trustee (RS) ustpregion16.rs.ecf@usdoj.gov Anne A Uyeda auyeda@bmkattorneys.com Annie Verdries verdries@lbbslaw.com Brian D Wesley brian.wesley@doj.ca.gov Service information continued on attached page

2. SERVED BY UNITED STATES MAIL: On _____________, I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed. Service information continued on attached page 3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on August 31, 2012, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed. Honorable Meredith A. Jury (Personal Delivery) U.S. Bankruptcy Court 3420 Twelfth Street, Suite 325 / Courtroom 301 Riverside, CA 92501-3819 Everett L Green (Personal Delivery) Office of the US Trustee 3685 Main St Ste 300 Riverside, CA 92501 Twenty Largest Creditors: Served on counsel via NEF: 2006 City of San Bernardino Taxable Pension Obligation Bonds, 2005, Series A Wells Fargo Bank, N.A. Corporate Trust Services Special Accounts Group Jerrold Abeles abeles.jerry@arentfox.com Mette H Kurth kurth.mette@arentfox.com

This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012

F 9013-3.1.PROOF.SERVICE

DOCSOC/1581498v1/200430-0003

Case 6:12-bk-28006-MJ

Kohl's Corporate Offices N56 W17000 Ridgewood Drive Menomonee Falls, Wisconsin 53051 Scott H Olson solson@seyfarth.com

Doc 127-3 Filed 08/31/12 Entered 08/31/12 12:17:54 Proof of Service Page 3 of 3

Desc

US Bank, N.A., Trustee 633 West 5th Street, 24th Floor, Los Angeles, California 90071 Jason D Strabo jstrabo@mwe.com, losangelestrialdocket@mwe.com California Infrastructure Bank and Economic Development Bank 980 9th Street, Suite 900 Sacramento, California 95814 Diane Shaw diane.shaw@doj.ca.gov Marquette Bank, 10000 W 151ST ST, Orland Park, Illinois 60462 Thomas V Askounis taskounis@askounisdarcy.com [The remainder of the List of 20 Largest Creditors are being served by the official claims agent; a separate proof of service will be filed] Service information continued on attached page I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.

August 31, 2012

Date

Christine Pesis
Printed Name

/s/ Christine Pesis

Signature

This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. June 2012

F 9013-3.1.PROOF.SERVICE

DOCSOC/1581498v1/200430-0003